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Wednesday, September 05, 2007

The market has an uncanny habit of beating expectations and surprising even the best of market cynics and optimists. The alarm witnessed during the early phase of the correction in August proves this point. The current volatility has brought forth many questions: what will be the extent of the crisis that has engulfed global bourses, duration of correction and sustainability of the three-year bull run in the Indian market?

In the past month, the average daily volatility witnessed in Nifty increased by nearly 86%, with the average daily point movement in Nifty being approximately ± 2.15%. This implies that the Nifty, on an average, moved 92 points both ways. This is in contrast to the regular market movement during the past one year when volatility was around ± 1.24%.

The spurt in the seismograph of Indian indices was not a one-off phenomenon, but was visible throughout the emerging and developed world. This short-term stampede was largely due to the sharp increase in risk aversion witnessed by investors, primarily FIIs and hedge funds. The rising defaults in the US subprime market — a fall-out of credit abuse — coupled with declining demand for new properties, hit financial companies which had securitised or invested in subprime loans and mortgages.

The consequent rise in losses in the US-based funds resulted in panic and increased redemption pressure on international funds. With the underlying assets (read subprime loans) having become illiquid, redemptions had to be funded via the sale of liquid assets. This led to a sell-off in emerging markets.

A more significant long-term impact of this could be the possibility of a slowdown in US consumption and the economy. The housing slowdown has already caused a dent in the home equity of US consumers. With higher oil prices looking a distinct possibility and declining real wages in the US, fears of a recession in the US economy have become real.

The latest US economic data hints at falling consumption of durable goods, residential investment in free fall, inventories on the increase and declining sales in the retail sector. The focus of the Fed is, therefore, shifting towards growth rather than inflation. So, there is a high likelihood of cut in interest rates in the US.

Against this backdrop, the India Growth Story acquires a much deeper meaning since India is one of the few nations whose growth is largely shielded form global upheavals, including that of the US. This is because almost two-thirds of our GDP comes from domestic consumption. The total Indo-US trade is around $26.8 billion and is growing at 29.5% YoY. Despite the US being our largest trading partner, the total contribution of the US trade in demand for Indian goods is around 1.7% of the GDP.

This implies that the high-paced growth seen in India since the past decade was sustained by internal demand. The government’s commitment to incur a capex of $300 billion in the next five years, coupled with a similar expansion programme in the private sector, has unleashed a capex cycle that is expected to sustain in the mid-term. The gross fixed capital formation in India is already at 30.2% of the GDP and is expected to rise to 35% in five years. This bodes well for India Inc, which can expect to see demand-driven growth in the future. In short, future GDP growth seems to be intact.

However, the domestic stock market will continue to be well-integrated with the global capital market. The eventual de-coupling of the Indian market from the crisis engulfing the rest of the world will begin gradually. The credit premiums offered for emerging markets have declined significantly on the back of huge currency chests of these economies. Against the backdrop of these uncertainties, the Indian investor has shown greater maturity by keeping faith in the market.

In fact, perhaps s/he has become far more confident in facing these bouts of volatility. But complacency should not set in. The investor should consider these bouts of volatility to buy fundamentally strong companies available at good valuations.

Rupee on Wednesday ended at 40.9250/9350 against dollar, stronger by five paise from previous close of 40.9750/9850, in anticipation of increased inflows amid some dollar demand from oil refiners.

In dull trade at the Interbank Foreign Exchange (forex) market, the local currency moved in a narrow range of 40.90 and 40.94 after resuming firm at 40.90/91 per dollar.

There was consistent dollar buying in the exchange market, prompted by soaring crude oil prices, which hovered around $74 a barrel in Asian trade, forex dealers said.

They said inflows and outflows was nearly matching as Foreign Institutional Investors (FIIs) stepped up activity in equity markets in the last three days after a massive pull out in August. FIIs pumped in $ 298.20 million on August 31 and September 3 in the equity.

Meanwhile, analysts expect India's trade deficit to widen in coming months as the oil import bill increases due to high crude prices and the stronger rupee hits exports, which in turn could put pressure on the local currency.

In cross-currency trades, the rupee also appreciated against the British sterling, the euro and the Japanese Yen.

The local unit bounced against the British Sterling to end the day at Rs 82.26/28 per pound from yesterday's close of Rs 82.50/52 per pound and also improved against the single European currency to Rs 55.58/60 per euro against previous close of Rs 55.66/68 per euro.

The rupee strengthened against the Japanese Yen to Rs 35.39/41 per 100 yen from last close of Rs 35.49/51 per 100 yen.

The markets closed the session on a negative note as BSE Sensex closed lower by 19.25 points at 15,446.15 and the Nifty slipped by 3.4 points to close at 4,475.85. The BSE mid cap and Small cap closed higher by 7.42 points and 18.86 points at 6,773.34 and 8,289.81 respectively. The market breadth was strong with 1,436 stocks are advancing and 1298 stocks are declining.

Mixed global cues kept Indian Indices in a volatile mood. Market saw firm start but then it saw series of wild swings through out the day. Profit booking at high kept market negatively biased. Lack of positive cues kept investors cautious to enter the market. As the day progressed markets lost further and entered the red zone. Some attempts were made to recover the losses in the final hour but pressure was maintained and the indices finally ended the day in the negative territory. Selling pressure was witnessed across the board but few selective Pharma, Cement and Software stocks were in favor. Some action was seen in the Mid and Small caps as they ended the day marginally up in green.

We believe that we are entering a consolidation phase. Sensex has multiplied 5 times in the last 4 years and so consolidation will not happen in a matter of weeks. It could be months. With the uncertainties looming ahead we believe that the upsides will be limited hereon. Technically though there are many who would debate our view.. but that is what makes the market.

As per reports, Property developer Akruti Nirman has tied-up with Limitless, a subsidiary of Dubai World to bid for the project for redevelopment of Asia's largest slum, Dharavi. There are 78 companies (25 international) in the race to bid for this Rs 9,250 cr Dharavi Redevelopment Project. The project will include replacing 57,000 slum structures spread over 500 acres (divided into five sectors of about 1.5 crore square feet each on an average). DLF, HDIL, Hiranandani group, Emaar-MGF combine, Sobha Developers and also the Ambani brothers separately are the major players here. The talks on this have been on from long time but no positive outcome has come till now. The process of selecting bidders may see some delay. Akruti flared up just on tie up news bidding is yet to be done. Really difficult to coment here.

The Reliance Group is planning to foray into footwear business. It will be sourcing footwear from exporters for its retail business. Reliance Retail is targeting business worth Rs 3000 cr in footwear by 2010-11. Of the targeted Rs 3000 cr the group expects Rs 1700 cr from supermarkets and hypermarkets and Rs 1250 cr from specialty stores, and Rs 50 cr from its Reliance Fresh chain. It expects footwear to comprise 3% of its total sales over the next 4-5 years and is expected to source 50 million pairs of footwear annually over the next 4-5 years. Reliance Retail has short listed 30 exporters for footwear sourcing. We had been waiting for the trigger which we believe will put pressure on the unorganised sector. Impact of the lesser footfalls are already being felt by the local shops. The Malls are taking away sales. If the large hyper markets start selling shoes, it will really lead to consolidation for the sector. This in a way is good for Bata and Liberty, which are the best brands in the category. Their sales growth has been limited by the Mom and Pop stores which really faced little pressure as their suppliers.. which too are the unorganised were out of the tax net. Crew Bos and Mirza Tanner are the other small palyers. We have covered Liberty and Bata in our research...Do read for more details.

Zinc fell to below $ 3000 per tonne and with metal charts are not showing the strength..the direction seems down. Eveready benifits from the low zinc prices. The company is also asset stripping. It sold its land as indicated in our previous heard and read. There is more property on the books and more than justifies the price. The Management meets tomorrow for a preferential issue to Promoter group. Interesting to note that the company hadissued about 67 lac warrants for Rs 95 and converted 9.4 lac warrants at that price. For the balance it had to pay 10% upfront. With the stock falling to half of that levels the promoters are probably using this opportunity to average out now that the future looks promising. The Uttaranchal plant has started and ramp up happening. Really.. we believe that this time around the upsides may be more sustainable. Ofcourse near term jump by Zinc could spoil the party.

Technically Speaking: Ranged and choppy session continued for the second day. Sensex made intraday high of 15581 and days low of 15407. Advances Declines ratio stood at 1:1. Sensex churned a Turnover of Rs 5146 Cr. Sensex failed to cross over the Resistance of 15570 which could be a temporary correction. On the lower side 15300 seems to be a good support. We expect the Sensex to do 15650 and if closes above that it might go on to make a new high of 16100.

The market failed to hold on to its first-half gains and buckled under sustained selling pressure in noon trades, with the index gyrating over 170 points during intra-day trades. Taking cues from positive Asian indices in early trades, the Sensex opened higher at 15,535 and touched the day's high of 15,581 quickly, but sustained selling in index heavyweights dragged the Sensex into the negative territory by afternoon. After zigzagging between the positive and negative territory thereafter, the market gained momentum in the late trades on buying in heavyweights, consumer durables and FMCG stocks. However, profit bookings towards the close saw the Sensex shed the early gains and end the session at 15,446, down 19 points. The Nifty also finally closed the session in the negative territory at 4,476, down three points.

The breadth of the market, however, was positive. Of the 2,793 stocks traded on the BSE 1,436 stocks advanced, 1,298 stocks declined and 59 stocks ended unchanged. Most of the sectoral indices of the BSE ended in positive territory. The BSE CD index gained 1.07% at 4,449. However, the BSE Oil & Gas index and the BSE CG index closed marginally down.

Everonn Systems was the most actively traded counter on the BSE with a turnover of Rs134 crore followed by Reliance Industries (Rs129 crore), Take Solutions (Rs125 crore), Lakshmi Machine Works (Rs124 crore) and Reliance Energy (Rs117 crore).

Domestic stock markets snapped their eight-day winning streak today, 5 September 2007, as profit booking emerged at higher levels in late trade. The market saw volatile movements towards the later half of the day, in sync with Asian and European markets, which also swung in and out of positive zone. Buying was seen in software, sugar and realty stocks. Selling was witnessed in capital goods and oil & gas stocks.

The BSE 30-share Sensex declined 19.25 points or 0.12% at 15,446.15. It opened higher at 15,535.35 and advanced further to hit a high of 15,580.86. It hit a low of 15,407. Sensex oscillated in a range of 173.86 points for the day.

The Sensex had surged 1,301 points, or 9.18%, in eight trading sessions, from 14,163.98 on 23 August 2007 to 15,465.40 on 4 September 2007. A fall in inflation and robust economic data along with steady inflow of FIIs helped the market rally in the recent past.

The S&P CNX Nifty slipped 3.40 points or 0.08% at 4,475.85. The Nifty September 2007 futures settled at 4416.15, a sharp discount of 59.70 points as compared to spot closing

The market breadth which was strong throughout the day, eased in late-afternoon session. On BSE; 1,403 shares advanced as compared to 1,331 that declined, while 65 remained unchanged. This is in contrast to morning session, when 1253 shares advanced, 324 declined and 29 were unchanged.

The BSE Mid-Cap Index rose 0.11% to 6,773.34 while the BSE Small-Cap Index gained 0.23% to 8,289.81. Both these indices outperformed the Sensex.

India’s third largest pharma company by sales, Cipla gained 2.17% to Rs 183.50 on 9.27 lakh shares. It was the top gainer from Sensex pack.

Ambuja Cements, India's third-largest cement maker, gained 1.98% to Rs 138.80 after the company said during trading hours on Wednesday, 5 September 2007, its cement shipments rose 3% to 1.15 million tonnes in August 2007 over August 2006.

India’s largest power generation company by sales NTPC advanced 1.74% to Rs 184.50. The stock hit an all-time high of Rs 188.60. As per reports, NTPC is looking at the possibility of acquiring Karnataka-based public sector firm Tungabhadra Steel Products (TSPL). TSPL is a supplier of hydraulic gates, radial and vertical gates for hydel power plants, equipment for sponge iron and thermal power plants, and even oil rigs.

ICICI Bank (up 1.45% to Rs 917.25) and Grasim (up 1.06% to Rs 3055) were the other gainers from the Sensex pack.

However India’s fourth largest software company by net profit, Satyam Computers slipped 0.72% to Rs 446 on high volumes of 14.26 lakh shares after a block deal of 11.61 lakh shares was struck on the counter on BSE at Rs 453.30 by 09:58 IST.

The rupee was hovering at 40.94, slightly firmer than Tuesday (4 September 2007)’s close of 40.97/98.

India’s largest private sector entity and oil refiner Reliance Industries (RIL) slipped form an all-time high of Rs 1999.30 struck earlier during the day. It shed 1.28% to Rs 1946.20 on 6.56 lakh shares. CPI (M) on Tuesday, 4 September 2007, joined the row over pricing of gas to be produced from RIL’s Krishna Godavari basin, asking the government to reject what it feels is an artificially inflated price proposed by the company.

RIL said after market closed on Tuesday, 4 September 2007, it had acquired a majority stake in Gulf Africa Petroleum Corp for an undisclosed sum.

India’s top small car maker in terms of net profit Maruti Udyog slipped 2.68% to Rs 869.95 after it hinted that it may continue to offer discounts on its car models to boost sales in the upcoming festive season. It was the top loser from the Sensex pack.

Ranbaxy Laboratories (down 2.09% to Rs 398.20), and ACC (down 2.05% to Rs 1075.10) were the other losers from the Sensex pack.

India’s largest listed cellular services provider in terms of profit, Bharti Airtel slipped 1.51% to Rs 846.40. As per reports, in the Karnataka circle, Bharti Airtel cannot acquire any operator as it already has a 39.7% market share. The 40% market share cap suggested by the Telecom Regulatory Authority of India (Trai) is likely to make mergers between existing telecom operators extremely tough.

Larsen & Toubro (L&T), India’s largest private sector engineering company in terms of sales lost 1.82% to Rs 2575.55. It’s ECC division in consortium with Paul Wurth, Italy bagged a Rs 1205 crore order from Bhushan Steel. L&T’s share in this project is pegged at Rs 760.5 crore.

Akruti Nirman moved up 4.34% to Rs 568 on reports that the company has tied-up with a Dubai-based firm Limitless, a subsidiary of Dubai World, to bid for the project for redevelopment of Asia’s largest slum, Dharavi in Mumbai.

Kernex Microsystem (India) jumped 5% to Rs 342.30 on rumors that it may bag a 6-year long railways contract worth Rs 2,000 crore in joint venture with Konkan Railways.

Ashok Leyland had gained 0.91% to Rs 38.70 on reports that the company is open to acquisitions and alliances in medium and heavy truck sectors.

Saregama India jumped 10% to Rs 275.10 after Sonata Investments acquired 10.58 lakh shares of the company, at Rs 260 per share in a block deal on Tuesday, 4 September 2007 on BSE.

Kirloskar Brothers slipped from a high of Rs 477.70 to settle 1.12% lower at Rs 464.95. Its joint venture firm KBL-PLR bagged a Rs 118.27 crore project from Andhra government's irrigation department. Of the total value of the contract, Kirloskar's portion is worth Rs 94.27 crore.

Autoline Industries rose 1.92% to Rs 199. As per reports, it is in advanced talks with a US-based maker of sheet metal-based assembled products with $25 million (Rs102.5 crore) in sales. The firm is also in initial talks with a European sheet metal component supplier which it is interested in acquiring.

Cambridge Technology Enterprises rose 1.21% to Rs 50.15 after it said before trading hours on Wednesday, 5 September 2007, its board has approved raising Rs 23.37 crore through the issue of 4.25 million convertible equity warrants at a price of Rs 55 each.

Bombay Burmah Trading Corporation surged 5% at Rs 488.50 on BSE on reports that the company may use its cash reserves to buy Danone’s 25.5% stake in Britannia Industries. As per its latest annual report, it has Rs 608.27 crore in consolidated reserves and surplus.

Hindoostan Spinning & Weaving Mills jumped 5% at Rs 56.10. It had gained 5% yesterday, 4 September 2007 on reports that the firm has sold 8 acres of its defunct mill located near the Siddhivinayak temple at Prabhadevi, Mumbai, for Rs 350 crore to Mumbai-based builder Akruti Nirman.

Gujarat Industries Power Company spurted 8.62% to Rs 69.95. Recently, its board approved expansion of its lignite-fired power generating capacity at an investment of Rs 1300 crore by installing two units of 250 mega watts each.

Exide Industries advanced 4.88% to Rs 64.45. Earlier on 28 August 2007, the company’s board had approved to raise Rs 150 via rights issue in the ratio of 1:15 i.e one rights share for every 15 shares held at Rs 30 per share.

Puravankara Projects was down 1.04% to Rs 371.50. As per reports, it is close to signing a memorandum of understanding (MoU) with France-based hospitality group Accor for the former’s first hotel project in Bangalore.

Pyramid Saimira Theatre (PSTL) was down 4% to Rs 336.90. It hit a high of Rs 361.90 on repots that it is bidding for Hoyts, the largest Australian chain of multiplexes owned by the Kerry Packer group, for around $360 million (Rs 1500 crore).

Jet Airways rose 0.55% to Rs 830, on reports it is delaying a planned $400-million rights issue because of the recent turmoil in the global credit markets.

The government late on Tuesday, 4 September 2007, announced setting up of a 15-member UPA-Left committee which will look into the concerns raised by Left parties on the Indo-US civil nuclear deal. External Affairs Minister Pranab Mukherjee will be the convenor of the committee. The committee will have six members each from Congress and Left parties and one each from UPA constituents RJD, DMK and the NCP.

European markets which opened after the Indian markets, were trading lower. Key benchmark indices in Germany (down 0.80% to 7,660.35), France (down 1.12% to 5,609.40) and United Kingdom (down 0.97% to 6,314.70) slipped.

Asian markets that began trading before the Indian markets, settled on a mixed note. Hong Kong's Hang Seng (up 0.77% at 24,069.17), Shanghai Composite (up 0.31% to 5,310.76) and Singapore's Straits Times (up 2.04% at 3,445.08) advanced.

Crude oil rose towards $75 today, 5 September 2007, after predictions of more hurricanes in the Atlantic Ocean raised concern over potential oil and gas outages. US crude was up 70 cents at $74.74 while London Brent crude was up 45 cents at $73.86.

The recent subprime crisis in the US, which has affected banks and markets across the world, has again highlighted the relationship between real estate and bank credit and the ramifications it has for the economy. An analysis of some of the real estate booms and busts of the past century exposes a strong correlation between banking activity and the real estate. The two are remarkably correlated in a number of instances, ranging from developed countries to emerging economies. The speculative real estate booms followed by sudden bursts were due to banks lending on liberal terms and underestimation of the risk profile of borrowers. 1920s’ Florida land bust The 1920s was one of the most prolific economic periods of American prosperity. The chain store movement revolutionised retailing and consumer products became affordable for the masses. Cars became the symbol of a new consumer culture. Easy availability of credit for automobiles spurred sales by 300% in a decade. Banks started to offer mortgage loans and their easy availability — often on liberal terms — resulted in frenzied real estate activity in Florida, pushing up property prices to unprecedented levels. It all came crashing down on September 18, 1926 when a powerful hurricane slammed Florida. It devastated the state with high winds and surging floodwaters. The huge task of rebuilding and the financial losses inflicted by the hurricane caused thousands of residents to abandon their new homes and return to northern cities. Thus, the Florida land boom cooled. Florida entered The Great Depression in 1926, three years earlier than the rest of America with the Florida land bust and did not recover until 1941.

1980s and the S&L debacle

In the late 70s, when the US witnessed double-digit inflation rates, real estate was viewed as a hedge against inflation. It was also around this time that the savings and loan (S&L) industry was deregulated and it began lending to commercial real estate, an area where the industry did not have sufficient experience. The industry lent to many third and fourth tier developers who built poorly-conceived projects. According to an IMF study, The federal income tax code was also revised in 1981, which strongly favoured real estate investment from a tax shelter perspective. Soon after Paul Volcker took over as Federal Reserve chairman in 1979, he went for monetary tightening to control inflation, which pushed up interest rates. The Federal income tax code was again changed in 1986, severely limiting the tax shelter aspect of real estate. Many developers and investors could not repay their loans to the S&L industry. A combination of rising interest rates, deregulation, real estate volatility, lack of regulatory oversight, mismanagement and overt fraud cases led to the crisis. The result of the 1980s building boom and the subsequent bust was the S&L crisis, which finally led to a bailout by the federal government in 1989.

Japanese bubble burst

Japan faced its worst banking and real estate crisis in the early nineties. Six trillion yen worth of loans by housing lenders who had borrowed heavily from banks and agricultural co-operatives turned bad.

Seven of the eight mortgage companies slipped into insolvency. In the 1980s, when Japanese economy soared due to its export incomes, the country deregulated its financial system. Faced with new competition, lenders turned to real estate developers, who were willing to pay higher rates than individuals. The market crashed in 1990 after the government put curbs on loans to developers. After peaking in December 1989, the Japanese stock market plunged over the next nine months to nearly half its value. As Japan entered its worst recession in decades, commercial real estate lost nearly half its value. Japan slipped into a decade-long recession.

Realty and the Asian crisis

More recently, in 1997, real estate speculation compounded the Asian currency crisis. Experience shows that financial liberalisation, though potentially beneficial, can be risky if undertaken in a fragile financial environment. For instance, a developer who borrows to invest in real estate and pledges land for collateral would put the lender at double the risk if property prices witness a sudden collapse. An undeveloped Asian market made it easy to conceal unreasonably high property valuations and borrowers gained greater leverage by mortgaging properties at inflated assessed values. The proceeds of these transactions were invested heavily in new businesses as well as expansions in the existing lines of business. By the mid 1990s, the size of the real estate sector was huge, relative to the size of these emerging economies. It was estimated that in 1997, the value of real estate in the Bangkok metropolitan region was almost half as large as the GNP of the entire economy of Thailand. Lending institutions operated under implicit guarantees, which created a moral hazard. Poor management within financial institutions too was a major source of fragility. Thus, the absence of effective market discipline and inadequate prudential regulations led to poor quality of bank’s asset portfolios.

US subprime crisis

The initial trigger for the US sub-prime crisis was increasing delinquencies in the US mortgage market. The crisis was boosted by highly leveraged lending against rapidly rising house prices. As house prices slumped in 2006, delinquencies and defaults on subprime mortgages soared, despite a benign economic backdrop. When housing prices rose, borrowers with poor credit history had the option to sell their property and square off their loans.

But when prices slumped and interest rate rose, many borrowers defaulted. This had a cascading effect on banks and hedge funds, which had mortgage-backed securities and collateralised debt obligations. Hedge funds specialising in subprime mortgage-backed securities took huge losses.

Although real estate comes across as a solid security, experience shows that real estate prices are prone to cyclic phenomena. Moreover, in countries where lending has been liberalised recently, lenders do not have the ability to assess the risk profiles of borrowers. This makes the financial system very fragile, as lending is not made on the basis of risk.

All eyes are on Vidya Sharma, captain and goalkeeper of the Indian hockey team, as she prepares to take the final strike in the World Cup shootout. No one can miss the UltraTech logo emblazoned across her T-shirt. The Aditya Birla Group-owned UltraTech Cement Ltd shed its staid image to associate its cement brand with the latest Bollywood hit, Chak De! India.And it is not the first among its peers to rope in filmdom for branding or endorsements: Binani Cements Ltd got megastar Amitabh Bachchan to lead its branding exercise with its line, “Who is bigger than Big B?”Riding high on a real estate and infrastructure boom, the cement sector has been growing at 10% annually and notched up a sales turnover of around Rs30,000 crore for 2006-07. Spiralling profits have also fuelled a healthy 30% rise in ad spends over thepast two years, taking total spend figures beyond Rs190 crore for the year ending March 2007.Cement is not the only commodity that is marketed like a product. “Other commodities such as salt, cooking oil and petroleum products have been pushed to customers as a brand, appealing to the emotive side of the audience,” points out Nirvik Singh, CEO, Grey Worldwide, the ad agency which did the creative for Ambuja Cements’ commercial, “Ye dewar tut ti kyon nahin”, and the ‘Dadi’ ad film.Emotive appeals take their cue from packaged goods strategies, and help cement majors stand out in a crowd. India’s production capacity will zoom to 85 million tonnes per annum over the next three years; a 50% addition to existing capacity. This would be next only to China in cement production. But, this large sector is highly fragmented, with over 50 players. The top five companies have a market share of more than 40%. “Brands in this category are largely dissipated in their individual imageries and are crying for awareness. Further, many operate in the space of the quasi-brand and even more operate with tough competition from the space of commodities,” says Harish Bijoor, CEO, Harish Bijoor Consults.This is where the glamour of Bollywood acts as the differentiator. The easiest route to brand awareness is through an endorser from either Bollywood or sports, says Bijoor. They give these brands quick recall value and connect with the persona exuded by the star or with a national sentiment, as in the case ofChak De.Vivid brand building adds power to the expansion drive of cement companies entering newer markets. National players such as Grasim Industries Ltd, of which Ultratech is a subsidairy, Ambuja Cements Ltd and ACC Ltd are adding capacities in the North, and so are North-based players such as Binani, JK Cement Ltd and JK Lakshmi Cement Ltd, says Rupesh Sankhe, Mumbai-based cement industry analyst, ICICI Direct.This shift in gears is reflected in their communications plans. ACC, India’s largest cement manufacturer with a tag line, “Build with confidence”, increased its ad spend 33% and unveiled a new logo. Meanwhile, Ultratech rode on non-traditional media. Explains Madhusudan S. Mokashi, deputy general manager (marketing services), cement division of Grasim Industries: “Television is a fragmented medium and the easiest way to reach my target is through movies. Chak De! India caters to the Hindi belt, and South Indians, too, could come to watch Shah Rukh Khan. Since the movie had more reach, we decided to use it as a platform for Ultratech brand-establishment.”While Ultratech is lookingat promoting more events linked to the film, others still prefer the traditional vehicles of paintings on walls of shops and houses, especially in rural and suburban areas, print and television. “For a category like cement, television is still the preferred medium for its mass appeal and the platform it provides to tell a story. Print media is a great tactical support medium for the intermediary market,” says Singh.The goal is to prevent pricing becoming the only determinant of a purchase decision. Says Singh: “Cement is merely the means to an end—a dream home. The challenge, therefore, is to develop an identity or personality for your product that consumers can relate to.”

Energy and Technology sectors helped the US market make a strong start today for the month of September, 2007. Stocks rallied right out of the gate today, Tuesday, 4 September, 2007 in spite of weak economic data. Higher crude prices helped the energy stocks immensely.

General Motors, Verizon and Exxon Mobil were the main Dow winners today. Home-Depot was the main Dow laggard.

Earlier today, the Institute for Supply Management reported its manufacturing index which was registered at 52.9% in August, just shy of the consensus and down from 53.8% in July. But since any reading above 50 signals growth, sellers were restrained.

Intel shares were up today 1.9% after Banc of America Securities increased its price target to $31 from $29, citing strong demand for notebook computers. Apple shares soared by more than 4% after a research firm said the iPhone was the top-selling smart phone in the U.S. during July.

General Morors tops analysts' estimates

General Motors shares today increased by 3.8% after posting a 6.1% increase in light vehicles sales in the U.S. in August, topping estimates from analysts, who forecast a fall of about 4%.

Technology’s biggest winner today was Yahoo! after Bear Stearns named it a top pick. The Financial sector's resilience to Merrill Lynch cutting their estimates on several large-cap banks was also noteworthy today.

Among Indian ADRs, HDFC Bank and ICICI Bank registered gains of 2% and 3.6% respectively. Among Technology stocks Infy and Wipro went up by 1.9% and 2.4% respectively.

Crude-oil futures for light sweet crude for October delivery closed at $75.08/barrel (higher by $1.04/barrel or 1.4%) on the New York Mercantile Exchange. Price rose on speculation that U.S. oil and gasoline supplies fell last week.

Comments from the Organization of the Petroleum Exporting Countries suggesting that the cartel will not increase production levels when it meets next week also helped support crude prices. Prices are up 8.5% from a year ago.

Volume was light with some traders likely still on holiday, with nearly 1.4 billion shares traded on the New York Stock Exchange, where advancing stocks beat declining issues by a margin of more than 4 to 1. At the Nasdaq, more than 1.8 billion shares exchanged hands, and advancing stocks outpaced decliners by nearly 2 to 1.

For tomorrow, traders’ attention will be focused on economic data to help set the tone of trading. July Pending Home Sales is to be released at 10:00 ET. The Energy Dept.'s weekly inventories report is expected at 10:30 ET while the Fed's Beige Book will be out at 14:00 ET.

Indian market is likely to have a positive opening on the back of strong global cues. On Tuesday, the Indian markets ended on a positive note, as BSE Sensex closed higher by 43.35 points at 15,465.40 while Nifty grew by 4.5 points to close at 4,479.25. We expect the market to remain range bound during the trading session.

On Tuesday, the US market closed in green. The Dow Jones Industrial Average grew by 91.12 points at 13,448.86. The Nasdaq advanced by 33.88 points at 2,630.24. The S&P 500 index increased by 15.43 points to close at 1,489.42.

The major stock markets in Asia are trading higher. Japan''s Nikkei trading higher by 11.92 points at 16,408.55. Hang Seng grew by 310.60 points to trade at 24,196.67. Taiwan weighted advanced by 33.74 points to trade at 8,956.72. Singapore Strait times increased by 20.56 points to trade at 3,396.62.

Indian ADRs ended in positive. In technology sector, Infosys grew by (1.91%) along with Wipro by (0.82%) while Patni computers and Satyam slipped by (0.83%) and (0.47%) respectively. In banking sector, ICICI bank advanced by (1.78%) while HDFC bank fell by (0.17%). VSNL and MTNL closed higher by (2.23%) and (1.88%) respectively.

Today, Nifty has support at 4,443 and resistance at 4,548 and BSE Sensex has support at 15,300 and resistance at 15,710.

The market is likely to move forward on the back of firm Asian markets in current trades and smart overnight gains in US markets. On the positive front FIIs remained net buyers of stocks for last few sessions likely to keep sentiment bullish. However, intra-day volatility remains the major concern. Among the indices, the Nifty may get support at 4360 and could test higher levels in the range of 4500-4540. The Sensex has a likely support at 15250 and may face resistance at 15700.

US indices clocked steady gains on Tuesday after early economic reports supported hopes that the Federal Reserve may cut interest rates soon, following the recovery in tech and oil stocks. While the Dow Jones gained 91 points to close at 13449, the Nasdaq ended 34 points higher at 2630.

Indian ADRs also surged on the US bourses. Rediff, ICICI Bank, HDFC Bank, MTNL, VSNL, Wipro and Dr Reddy's gained over 1-4% each while Satyam, Tata Motors and Patni Computers were down marginally.

Crude oil prices in the global market moved up, with the Nymex light crude oil for October series rising by $1.04 at $75.08 a barrel. In the commodity segment, the Comex gold for December delivery surged $9.60 to settle at $691.50 an ounce.

The market is expected to continue its rally further boosted by firm global markets. It has been rallying for eight straight sessions, till 4 September 2007. A fall in inflation and robust economic data along with steady inflow of FIIs helped the market rally in the recent past.

Asian markets were trading higher today, 5 September 2007 encouraged by a higher close on Wall Street yesterday, 4 September 2007, after a long holiday weekend.

Crude oil rose towards $75 today, 5 September 2007 after predictions of more hurricanes in the Atlantic Ocean raised concern over potential oil and gas outages. US crude was up 70 cents at $74.74 while London Brent crude was up 45 cents at $73.86.

The BSE 30-share Sensex rose 43.35 points or 0.28% at 15,465.40, on Tuesday, 4 September 2007.

The Sensex has now surged 1,301 points, or 9.18%, in eight trading sessions, from 14,163.98 on 23 August 2007 to 15,465.40 on 4 September 2007. The S&P CNX Nifty was up 4.50 points or 0.10% at 4479.25, on 4 September 2007.

The BSE Sensex is now 403.45 points away from its all time high of 15,868.85 struck on 24 July 2007 from Tuesday’s, 4 September 2007 close of 15,465.40

British beer giant Scottish & Newcastle (S&N)’s stake in United Breweries (UB) is back in the spotlight, with the Indian brewer confirming that the right of first refusal (RoFR) on the foreign partner’s shareholding will be pressed only to block the entry of certain competition, primarily SABMiller. S&N and Vijay Mallya equally own UB with 37.5% stake each.

UB’s move throws up opportunities for Copenhagen-based Carlsberg, which according to international media reports, is tipped to be the frontrunner to buy out S&N.

British media reports suggested that private equity Blackstone has been in discussions for placing a bid for S&N, which is seen hurtling towards an eventual sellout valued above $12 billion. It is believed that Blackstone has held talks with Carlsberg and S&N on the evolving situation.

“The RoFR that we have is limited to restricting certain business rivals,” UB sources said. "We do not have a problem with most of the global brewers, and we keep receiving interest from several of them though not linked to S&N developments," the sources added.

They declined to comment on whether UB’s right of first refusal was linked only to block SABMiller, which is the only serious rival in the Indian beer market now. UB, makers of Kingfisher beer, accounts for nearly 47% share of Indian consumption, while SABMiller follows with 36% share.

However, a source said UB, which had negotiated a failed joint venture with Carlsberg in the 90s, has nothing against the Danish brewer. “It is all long buried in the past,” the source quipped.

Investment bank Dresdner Kleinwort stated the possibility of acquisition of S&N by Carlsberg was high at 70%, while Merrill Lynch said a deal with Carlsberg looks “inevitable”. Both Carlsberg and S&N have declined to comment on media speculation with a business-as-usual approach.

It is believed that UB could attract a standalone valuation of $2-2.5 billion, which pegs the S&N stake at around $900 million. S&N bought into UB at Rs 575 per share. The stock, which underwent a 1:10 split subsequently, was quoting at Rs 310 (Rs 3,100 on Rs 10 share) on BSE on Tuesday.

The robust rally in market capitalisation and the strategic significance of the Indian market, touted as the last potentially big beer market globally, could place UB along with its Russian JV Baltic Beverages Holdings (BBH) as jewels in the S&N crown.

Industry observers said any opportunity to break into UB will excite a larger interest among leading global brewers. “This is a chance to gain a major entry into in the biggest brewer in India, which is arguably the fastest-growing beer market globally,” said an industry expert who did not wish to be quoted.

Even though most of the global brewers have charted an independent foray into India, it is believed that players like InBev, the world’s biggest brewer by volume, have continued to look at UB.

Spare a thought for your teachers on Teacher's Day. But for the markets more than Warren Buffet, Peter Lynch et al, it is experience which has been the best teacher and the price investors pay for it is each one's guarded secret. The bulls may not have had much to cheer about yesterday, but today is a better day. After enjoying a long weekend, US stocks ended higher amid continued hope that the Federal Reserve will slash its benchmark interest rate on Sept. 18 to prevent the US economy from slipping into a recession. Most experts are betting that not only this month, but the US central bank is also likely to cut rates in the coming months to avoid a major downturn in economic activity. If this scenario plays out as anticipated, the bulls will regain their control over world equity markets, including in India. Still, there are worries that the Fed action may not be sufficient to help the US economy ward off the threat of a recession. So, one has to keep a close watch on the global developments.

On the domestic front, there are no big concerns on the economic front. But, on the political side, we seem to be heading into mid-term polls sometime early next year, unless senior Congress party leaders find a surprise solution. As far as liquidity is concerned, the outlook is getting positive again with both FIIs and Mutual Funds persisting with their buying spree. Today, we expect a higher opening, and perhaps an equally bullish close. Hopefully all will end well today.

Reliance could be in action following the acquisition of GAPCO in East Africa. Jet Airways is another stock to watch out for as it has deferred its proposed $400mn Rights Issue. Akruti Nirman will be in action as it is reportedly planning to bid for the Dharavi project with a Dubai firm. Puravankara Projects may also attract some attention as it plans to tie up with French hospitality major Accor for its foray into this sector. Pyramid Saimira is expected to be in the spotlight as a financial daily reports that it is likely to bid for Australian theatre chain Hoyts, owned by media tycoon Kerry Packer.

IDBI and IFCI will remain in the thick of things ahead of the latter's stake sale announcement. Mastek could rise as it will today announce plans for raising additional funds. Murli Industries may advance amid reports of its entry into the cement sector. Abbott India will also be in action as it will declare its plans for the proposed share buyback. Eveready Industries is likely to gain as it is expected to consider a private placement tomorrow.

US stocks rallied after investors returning from an extended weekend snapped up technology, energy and financial shares. Stocks climbed after economic reports stoked optimism that the Federal Reserve might consider cutting interest rates at its meeting on September 18.

Apple advanced to a one-month high on speculation that sales will exceed estimates. Exxon Mobil climbed after the price of crude rose to a one-month peak. Goldman Sachs and Lehman Brothers helped spark a second straight gain in banks and brokerages.

The Standard & Poor's 500 Index added 15.43, or 1.1%, to 1,489.42. The Nasdaq Composite Index rose 33.88, or 1.3%, to 2,630.24 for its steepest four-day rally in four years. The Dow Jones Industrial Average climbed 91.12, or 0.7%, to 13,448.86, held back by a 5.1% decline in shares of Home Depot.

The Institute of Supply Management's manufacturing index slipped to 52.9 in the latest survey, down from the 53.8 reading for July. Any reading above 50 indicates growth in the sector. Economists had forecast the index would slip to 53 in the latest survey.

Meanwhile, July construction activity sank by the biggest amount in six months as spending on homes fell for a record 17th straight month.

Light, sweet crude rose $1.08 to $75.12 a barrel on the New York Mercantile Exchange. The front-month contract was up 12 cents at $75.20 a barrel in extended trading in Asia.

Treasury prices fell slightly, raising the yield on the 10-year note to 4.55% from 4.53% late on Friday. The dollar was up against the euro but lower versus the yen. COMEX gold for December delivery rose $9.60 to $691.50 an ounce.

European shares recovered from earlier losses to close broadly higher. The pan-European Dow Jones Stoxx 600 index added 0.7% to 379.47, with gains in the banking sector leading the way. The German DAX 30 closed up 1% at 7,721.77, while the UK's FTSE 100 gained 1% to 6,376.80 and the French CAC-40 added 0.4% to 5,672.72.

Latin American ended mixed. Brazil's Bovespa closed up 0.8% at 55,250.47 and Mexican stocks, as measured by the IPC index, rose 0.4% to 30,932.17. Chile's IPSA shed 2 points to close at 3,324.58. Argentina's Merval index also closed lower, by 0.2% at 2.068.19.

In other emerging markets, the RTS index in Russia dropped 1.1% to 1904 and the ISE-National 30 index in Turkey added 0.2% to 62,963.

Asian markets were trading mixed. The Nikkei in Tokyo was down 45 points at 16,375 while the Hang Seng in Hong Kong jumped 259 points to 24,145. The Straits Times in Singapore rose 19 points to 3395 and the Kospi in Seoul was flat at 1875.

Markets continued its upward run as key indices managed to end in a positive territory for seventh consecutive day. With lack of triggers from the International markets bulls were unable to find any specific direction and moved in a narrow range throughout the trading session. However, volumes rose. Turnover in NSE cash segment rose 4.1% and in F&O segment rose 13%. Finally, the BSE 30-share Sensex closed at 15,465 adding 43 points. NSE Nifty added 4 points to close at 4479.

TCS gained by 0.7% to Rs1066 after the company won a deal from Roche. The scrip touched an intra-day high of Rs1087 and a low of Rs1061 and recorded volumes of over 5,00,000 shares on NSE.

Centurion Bank of Punjab gained 1.1% to Rs40 amid market grapevine of another small acquisition. The scrip touched an intra-day high of Rs41 and a low of Rs39 and recorded volumes of over 2,00,000 shares on NSE.

Tata Motors slipped by 1.6% to Rs691 after the company’s August sales fell 0.4%, its fourth monthly decline as demand remained sluggish due to high interest rates. The company sold 45,144 commercial and passenger vehicles in India and overseas last month. The scrip touched an intra-day high of Rs707 and a low of Rs682 and recorded volumes of over 14,00,000 shares on NSE.

Dollex Industries slipped 2.3% to Rs102. The company announced that they have acquired Sugar making Facility for Rs140mn. The scrip touched an intra-day high of Rs105 and a low of Rs103 and recorded volumes of over 48,000 shares on NSE.

ICICI Bank edged higher by 0.3% to Rs908 after the company announced that it borrowed $1.5bn in overseas loan. The scrip touched an intra-day high of Rs926 and a low of Rs901 and recorded volumes of over 18,00,000 shares on NSE.

L&T advanced by 1.5%to Rs2624 after the company secured Rs2.67bn orders from Indian Oil and Liaoning Huajin Chemical. The scrip touched an intra-day high of Rs2640 and a low of Rs2590 and recorded volumes of over 8,00,000 shares on NSE.

Fertilizer stocks were in momentum led by gains in Nagarjuna Fertilizer surged by over 5.5% to Rs42, Chambal Fertilizer was up by 1.4% to Rs50, Deepak Fertilizer spurred by over 7% to Rs114.

Realty stocks ended higher. Unitech surged by over 3.5% to Rs253, DLF advanced by 2.1% to Rs623 and Ansal Infrastructure gained by 3% to Rs258.

Select FMCG stocks were on the receiving end on back of profit booking. Colgate slipped by 2% to Rs393, ITC was down by 0.7% to Rs172; Tata Tea edged lower by 0.8% to Rs762. However, Goderej Consumer, Marico and Hindustan Unilever were among the major gainers.

IT stocks witnessed fresh buying interest. Infosys advanced by 1.8%to Rs1889, TCS gained by 0.5% to Rs1066, Satyam Computer added 0.5% to Rs449. However, Wipro was on the receiving end, the scrip was down by 1.8% to Rs465.

The market is expected to move in a range after closing flat today unless RIL turns the magic on Dalal Street. Bulls will be placing their hope on heavyweight Reliance Industries on Wednesday after the company acquired a majority stake and management control of Gulf Africa Petroleum Corporation (GAPCO), a company which has a significant presence in East Africa in the petroleum downstream sector. And traders will certainly anticipate that global cues can provide some direction to the bulls with the resumption of US markets after being closed yesterday. The downside appears to be limited though risks from unforeseen global as well as domestic events could pose some threat to the current upswing.

Fund Activity:

FIIs were net buyers of Rs3.48bn (provisional) in the cash segment on Tuesday and the local institutions pumped in Rs679.8mn. In the F&O segment, foreign funds were net buyers of Rs1.06bn.

On Monday, FIIs were net buyers to the tune of Rs5.28bn in the cash segment. Mutual Funds were net buyers of Rs1.43bn on the same day.

Bajaj Auto Ltd (BAL) reported a 7% year-on-year (y-o-y) drop in the motorcycle sales for August 2007. The overall sales declined by 6% year on year (yoy) and grew by 5% month on month (mom) at 195,707 vehicles.

BAL is launching its new bike Exceed on September 9, 2007 and has already begun its production at the Waluj plant. The company targets to sell 20,000 vehicles in September and about 50,000 vehicles by November 2007. The new vehicle should further fuel the growth in sales numbers in the festive season, beginning next month.

The company plans to shut down its Akurdi plant from September 2007 and shift the production to its Waluj plant. The company manufactured only its scooter Krystal from this plant. With the production of the same being shifted to Waluj, the company hopes to save through sales tax benefits and other tax incentives.The Akrudi plant is spread over ~200 acres, and we estimate that it could add Rs95 per share to the value of the company, in case the management decides to sell it off.

The sales numbers for the company as well as the industry should improve going forward. Further, the improved product mix is likely to increase the operating margins for the company going forward. At the current market price of Rs2,321, the stock trades at 19.3x its FY2009E earnings and is available at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 12.4x. We are slightly raising our FY2008E earnings for BAL by 2.7% to Rs109.7. We have valued BAL on-sum-of-the- parts basis and are raising our price target for the company to Rs2,550. We are also upgrading our recommendation on the stock to a Buy.

Nicholas Piramal India Ltd (NPIL) has announced the demerger of its new chemical entity (NCE) research into a separate company called Nicholas Piramal Research Company (NPRC). The proposed demerger would be effective from April 1, 2007 and the new company will be listed on the bourses by June 2008.

With a focus on the therapeutic segments of oncology, diabetes, inflammation and infectious diseases, NPIL has a pipeline of 13 molecules, including one molecule in-licensed from Eli Lilly for clinical development. Of the 13 molecules, nine molecules (including the one in-licensed from Eli Lilly) are in pre-clinical development stage, whereas the remaining four molecules are in Phase II clinical trials. Further, four more molecules are scheduled to enter the clinics by the end of FY2008, which would make NPIL one of the largest clinical development pipelines among the Indian players.

As a part of the demerger plan, NPIL will initially invest Rs4.55 crore as equity capital in the new company (NPRC). It will also transfer Rs90 crore worth of fixed assets (as per book value) and Rs95 crore of cash to the new company. In consideration, NPIL will issue one new share of face value Rs10 each in the new company to all its shareholders for every ten shares of face value Rs2 each held in NPIL (ie in the ratio of 1:10).

With the proposed demerger, the managament has revised its guidance for FY2008. Even though the top line growth guidance has been maintained at 25%, the operating profit margin (OPM) is expected to expand to 17.7% (as against the earlier guidance of 15.5%) on the back of a Rs70 crore savings in the research and development (R&D) expenses. The capital expenditure (capex) is also expected to come down to Rs150 crore versus the earlier guidance of Rs210 crore. As a result, the earnings per share (EPS) is expected to improve by Rs3 to Rs17.0 (as compared with the earlier guidance of Rs14).

We have attempted to value NPRC in line with Sun Pharma Advanced Research Company (SPARC, which is the demerged innovative R&D unit of Sun Pharmaceuticals). SPARC is currently trading at an estimated 5.7x its planned R&D spend of around $70 million (Rs287 crore) over the next three years. On assigning a similar multiple to NPRC's projected discovery R&D spend of Rs310 crore, we arrive at a value of Rs1,755.2 crore for NPRC. This translates into a per share value of Rs688.3 (2.545 crore shares of face value Rs10 each). However, for NPIL, whose shares have a face value of Rs2 each, this would imply a per share value of Rs137.6.

With the demerger of the R&D division, the earnings of the company are expected to improve by Rs3 per share (as per management guidance), implying a price appreciation of Rs54 (if we assign a multiple of 18x to the incremental EPS). We will be revising our estimates for NPIL in order to incorporate the impact of the proposed demerger at a later date. At the current market price of Rs288, the stock is trading at 21.5x its estimated FY2008E earnings and at 17.7x its estimated FY2009E earnings. We maintain our Buy recommendation on the stock with a price target of Rs326.

SECTOR UPDATE

Automobiles

Maruti, Hero Honda lead the showAfter lacklustre sales in the past two months, we saw a slight revival in the sales of two-wheelers and four- wheelers in August. The major gainers during the month, however, were the industry leaders Hero Honda and Maruti Suzuki. Both posted a much higher growth than their peers.

VIEWPOINT

Gujarat NRE Coke

Merger of subsidiaries and growing investment valueIndia NRE Minerals Ltd (INR) proposes to acquire Gujarat NRE resources NL (GUJ) by way of an off market take over bid with the merged operations creating a major Australian coal company with coking coal reserves of ~456 million tonne.

Great Offshore

Fleet expansion boosts FY2007 revenuesWe attended the Annual General Meeting (AGM) of Great Offshore (GOL) and the key takeaways from the same are mentioned.